Tesla said Governor Christie’s administration has "gone back on its word"

Tesla Motors has been trying to push its direct sales model into various U.S. states, and while it saw a bit of success with New Jersey, a new state rule could destroy Tesla's plans.

According to Tesla, New Jersey Gov. Chris Christie’s administration recently proposed a new rule that requires that a person have a franchise agreement with an auto manufacturer in order to be granted a license to sell.

This is a problem for Tesla, considering it already operates two stores in New Jersey and had plans to open more. It's possible that Tesla could have to stop selling its all-electric Model S and any future vehicles in these stores and instead use them as showrooms where customers can look, but not buy.

"Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature," said Tesla in a statement. "The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state.

"Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla’s stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market."

Tesla CEO Elon Musk and President Barack Obama

Tesla has been in a battle with many states regarding its direct sales model. The issue is that auto dealerships feel Tesla's new sales model threatens their network, which many other automakers rely on. If other automakers were to follow Tesla's example, it would put the dealerships in a bad spot. The National Automobile Dealers Association (NADA) said that dealerships are necessary to ensure competitive prices for customers, and that it will continue to defend franchise and consumer laws in the states.

Tesla CEO Elon Musk, on the other hand, believes that auto dealerships don't do a very good job at selling specialty cars like Tesla's high-end electric vehicles (Roadster, Model S). Hence, he's looking to run his own Tesla stores around the U.S. where he believes his cars will get a fair shot at being sold.

However, the problem for Tesla is that auto dealerships have much deeper pockets -- meaning that they have a lot more to spend on lobbying, and lawmakers will surely side with them when money is involved.

In fact, auto dealers spent $86.8 million on state election races across the U.S. between 2003 and 2012. They also spent $53.7 million on federal campaigns. Tesla, on the other hand, has spent less than $500,000 on both state and federal politics.

Tesla has gone head-to-head with many other states that are protecting auto dealerships, such as Massachusetts, Ohio and New York.

Just last month, it was reported that Ohio Sen. Tom Patton (R-Strongsville) backed a new bill called Senate Bill 260, which aims to prevent Tesla and any other automaker from "applying for a license to sell or lease new or used motor vehicles at retail." Tesla opened its own stores in both Cincinnati and Columbus, as Ohio's current laws allow the automaker to do so. However, Senate Bill 260 would certainly put a stop to it, unless existing stores opened before the bill are deemed safe.

What's interesting is that Patton received at least $42,825 between 2002 and 2013 from state and national auto dealership owners, employees, and political action committees.

quote: The reason it won't work is because income made from investing is taxed at a lower rate than income.

That's a common misconception caused by people misunderstanding graduated income taxes. Say your income is around the national average - $50k/yr. That puts you in the 25% tax bracket, but that doesn't mean you pay 25% of your income in taxes.

For 2014 you get the first $6200 tax-free.The next $9075 is taxed at 10%.The next $27825 is taxed at 15%.The remaining $6900 is taxed at 25%.

Your total taxes are then $6806.25, or 13.6%. You pay less than the minimum 15% capital gains tax on investment income.

Scroll over to cell T10. That's the average percent paid in income tax relative to gross income (S10, percent of taxable income, excludes any deductions from your income). It's 13.6% for the country overall. That is, the average (mean) taxpayer pays 13.6% of their income in federal income taxes, which is less than the minimum 15% capital gains tax.

If you scroll down column T, you can see the average income tax rate does not exceed 15% until T23 (19.7%). Row 23 is the $200k-$500k tax bracket. That is, on average (mean), everyone earning less than $200k/yr pays a smaller percentage in income taxes than the capital gains tax. The median (50th percentile - about $50k) is even lower. They pay on average between 7.4% to 8.6% of their income in federal taxes. (My $50k example above came out higher because he didn't have kids, didn't take a mortgage deduction, and didn't contribute to any charities.)

So the tax rate on investment income is twice what the 50th percentile taxpayer pays.

quote: Perhaps all profits every year must go to the share holders unless it will be used in the very near future to re-invest..

That is the way it works right now. Profits are distributed to shareholders, unless declared retained earnings and kept for future growth and expansion (i.e. future expenses).

quote: Also, I think there would have to be some rules regarding subsidiaries in other countries and how income earned elsewhere impacts people here.

That's actually what first got me thinking along those lines. The bottom line is you (as a U.S. citizen) have no say in how Antigua or the Bahamas or Ireland structures their taxes. If they don't want to tax corporations or tax them at a very low rate, that's their right.

Successful owners and accountants of companies became successful by being very good at maximizing revenue while minimizing expenses. That's how they see the differing tax rates in different companies - an accounting optimization problem. Eliminate corporate taxes here and you eliminate their incentive to shift funds to shell corporations in those countries. If you read my post below, you can see how it doesn't really matter whether you tax corporations or individuals. Since you're taxing the employees instead, and their employees are in this country, you're still getting the bulk of (if not more) tax revenue than in the current situation.

quote: Right now a company gets a tax break on creating jobs here, but if there were no taxes, why not move your company to Canada and sell the product in the US (if there are some expenses in Canada that are cheaper than the US).

Well, they wouldn't do that because Canada taxes corporations and the U.S. would not under my proposal.

The main problem I see is actually the opposite. A corporation sets up factories in China to take advantage of the cheap labor there. Then they cook the accounting books to shift most of the profit back to the U.S. (if it had no corporate taxes). That's great for the U.S., but unfairly deprives China of taxes on revenue its workers are responsible for. Basically the situation with Ireland and the EU.

This would be much simpler if we just abolished the income tax altogether. The Government was much better behaved, smaller, and Constitutional without it.

The concept of the income tax is immoral, and was entirely Unconstitutional before they amended it. To take a cut of someones earned pay, before they can even see it, is monstrously evil and it's sad that it is something we've just come to accept.

Abolish income taxes. Use tariffs, sales taxes, and other use taxes instead. Return the power to the States.